Which one of the following statements is correct?
A) A convertible bondholder is forced to convert no later than a pre-specified time.
B) The convertible option on a bond gives the owner the right to buy shares from a company at a pre-determined cash price.
C) The owner of a warrant has an option to convert the warrant into convertible bonds.
D) The owner of a warrant will benefit if the firm's stock does well.

Question

Quizplus · Accepted Answer

The statement that is correct is D, as the owner of a warrant will benefit if the firm's stock does well. A is incorrect because the convertible bondholder has the option to convert at any time, not being forced. B is incorrect because the convertible option on a bond gives the owner the right to convert the bond into a pre-specified number of common shares, not to buy them at a cash price. C is incorrect because the owner of a warrant has the option to buy common shares at a pre-specified price, not to convert them into convertible bonds.

Which One of the Following Statements Is Correct